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article imageOp-Ed: Taxes, giant multinationals, and problems which can be fixed

By Paul Wallis     Aug 27, 2019 in Business
Sydney - Governments are revenue junkies. The way they use revenue is often absurd, but how they collect it, or don’t collect it, is a huge problem. Major companies like Amazon, Google, etc. have a workaround for taxes which is creating big tax problems.
The Trump/Macron deal is a case in point. It’s been slammed by the Computer & Communications Industry Association (CCIA) as “unilateral” (ironic given Trump’s trade positions) and “discriminatory”. The deal looks pretty vague, and the CCIA has a point, but it’s shot itself in the foot with this view, too.
The problem for revenue with companies like Amazon, Google, Microsoft, Facebook, Apple, etc. is that these companies re-route their tax liabilities to other countries, often to Ireland, which has a pretty friendly tax environment. (The Irish have done an excellent revenue deal with these companies, and good luck to them, but by definition, a tax deal with one country doesn’t relate to revenue issues for other countries.)
This is the problem - A simple online transaction in Australia, for example, doesn’t pay corporate income tax in Ireland, or Australia. because that Income is deemed to be sourced in Ireland, which it isn’t. The money comes from Australia, and under any other circumstances, for all other companies, tax would be payable in Australia.
(Please note I have to stick to Australia as an example because I don’t know enough about other countries’ tax laws. The general principles are the same, though.)
So these big companies do billions of dollars’ worth of business in Australia and don’t pay taxes on it. A few issues here:
1. This tax situation is heavily slanted against local and other foreign companies, which do pay tax on their profits. It’s totally unfair.
2. Governments are deprived of revenue to which they would otherwise be naturally entitled.
3. A truly absurd tax situation which is basically no law for some foreign companies and enforcement against all other companies is effectively one law for the rich, and no traction for anyone else.
Recently, Australia imposed a Goods and Services Tax (GST) on online transactions. This is a 10% Federal tax which raises revenue for the states and territories and is a bit like Europe’s VAT.
Now consider the anomaly – GST is based on transactions in Australia. Everyone pays it, and it applies to everything but food and a few exempt items. How does it suddenly become non-taxable as income, if it’s deemed by law to have to pay GST?
The short answer is that it doesn’t. These transactions are clearly generating income and a lot of it. So the CIAA is basically barking up the wrong tree, in this regard. Are they saying there are no transactions, that income isn’t generated? Hard to believe.
Ah, um…but? CIAA, your talking points are better than you think
The other side of this rather shopsoiled coin is that foreign companies do have rights. In Australia, foreign companies and business entities do pay taxes, but also get a range of tax incentives, concessions, etc. Australian companies make billions quarterly, so obviously, our tax regime isn’t really all that oppressive.
The CIAA is quite right to question half-ass tax measures, though. If a tax scheme is not normal tax, guided by law, and statutes with proper safeguards, it’s not likely to work, either. The “discriminatory” position is at least partly right, for many of the wrong reasons.
For example:
• How does a court uphold rights of taxpaying companies based on what seems to be a sort of open-ended “maybe’ scenario? You could be bogged down for years, not raising revenue, and not getting any clarity.
• How to you manage your company’s tax liabilities, to start with?
• What sort of possible guidance can there be on any arbitrary revenue deal not reinforced by statutes, so people at least know the rules and definitions?
Global confusion doesn’t help
Those are legitimate bitching points, but there’s more:
• Why should international trade be the first thing put on the line on the basis of what is basically normal business? That hardly helps CiAA’s members, which do big business worldwide.
• Every deal has to be slogged out individually? It’s administrative nonsense, at best. A simple basic tax rule, applied globally, could only be better than this farcical nation-by nation nitpicking approach to revenue.
• The reaction to the French deal was pretty hostile, with and without a few good reasons. Do governments seriously expect enthusiastic cooperation on what seems to be an open-ended but truly half-ass tax regime?
• These companies are obliged to comply with the jurisdictions in which they operate, and despite urban myths, they largely do, with a few contentious caveats. Creating what at least can be seen as a discriminatory tax position offers no incentives, and no encouragement to do business.
The tax question must be solved, and solved with proper legal bases for taxpaying companies to conduct business. This spur of the moment approach very obviously isn’t how to do it. Back to the drawing board, guys, and this time, let’s get it right.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
More about Ciaa, Computer & Communications Industry Association, Trump Macron tax deal, tax theory, foreign company tax
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